Durban - Four years after former FNB financial adviser Clynton Cotton pleaded guilty to stealing R12 million from his clients, one of them has finally won a court battle with the bank to be repaid R2.5m that she invested through him.
The money that Carmen Goodman entrusted to Cotton was part of a substantial pay-out from the Road Accident Fund to her husband, Lance, who sustained serious injuries in a vehicle accident.
Goodman was appointed as curator bonis of his estate, and the funds were to be invested for his benefit.
Cotton, then 40, pleaded guilty in May 2008 to 40 counts of fraud and one of money laundering after making a full and voluntary confession of his crimes to the bank.
He was sentenced to an effective 10 years in prison but only served three years in jail, the rest of his sentence being changed to correctional supervision. He was released from jail last year.
As part of an agreement with the State, he paid back R160 000 to the bank and agreed to the seizure and restraint of his assets.
The bank compensated many of his victims, including another claim lodged by Goodman of R600 000. But it denied her claim of R2.5m, pointing to the contract she signed with Cotton, on behalf of FNB, which stated that he would render services in accordance with accredited products. The bank argued that the loss of R2.5m had been through an investment or loan he had made on her behalf in a company which was not an accredited product.
In a recent judgment, Durban High Court Judge Mohini Murugasen said the evidence showed that Goodman had initially invested R4.6m in a Liberty product through Cotton, which was to be “ceded” to the Master of the high court as a bond of security over her husband’s estate.
On the advice of Cotton – but without the Master’s approval – Goodman withdrew R2.5m from the investment and reinvested the money in a Stanlib product.
From there, the money was withdrawn and lent to Macro Steel, Cotton misrepresenting to the owners of that company that he was the investor and that it was his money.
Macro Steel repaid the R2.5m with interest of R250 000. On the instruction of Cotton, about R2.2m was paid into Securitised Endowment Traders cc (SET), which was controlled by Cotton, and R500 000 to a lawyer’s trust account.
On Cotton’s instruction, the R500 000 was then split up and paid to SET, to a foreign company and another close corporation in which Cotton had an interest.
Goodman, in her evidence before the court, said she had trusted Cotton “absolutely”.
The judge said: “She was aware that he was employed by FNB. He had a dedicated secretary and she believed he was the branch manager.
“She also did not concern herself about the Master’s approval as she assumed that as Cotton had met with the Master and the Master had approved the initial investment, there was no need to go through the process.”
Goodman further said she had assumed that all the investments were accredited by the bank.
The judge said the pertinent and undisputed evidence was that Goodman had consulted Cotton in his office at the Overport branch of the bank, as an employee of the bank. He had offered her advice on investment products which she had accepted and acted on without any adverse result or effect on the estate until the last investment.
“She was consequently susceptible to inducement by Cotton. Not only did she trust and rely on him, the inducement was attractive because he advised her that she would get better returns.”
The judge said that Cotton, in his interaction with Goodman, had conducted himself as a financial consultant in the employ of the bank and had recommended or proposed products which ostensibly lay within his mandate.
“There was no need for her to question or be suspicious. His unlawful conduct was closely allied with his employment with FNB,” the judge said, adding that it appeared that at the time there were no specific safeguards to alert the bank to the fraud and theft committed by Cotton and for the protection of his clients.
The judge granted judgment in favour of Goodman for R2.5m, with interest from 2006 and her legal costs. - The Mercury